Revenue guidance raised, EPS stagnant: American Express plunges 6% after profit beats expectations, as the market reprices the “cost of growth.”

Revenue guidance raised, EPS stagnant: American Express plunges 6% after profit beats expectations, as the market reprices the “cost of growth.”

American Express's second quarter profit exceeded expectations, and the company raised its full-year revenue growth guidance to 10%. However, its stock price plunged after the earnings release.

Before the US market opened on Friday, American Express announced its second-quarter earnings, with revenue of $19.64 billion, up 10% year-on-year, and earnings per share of $4.53, surpassing the analysts’ average estimate of $4.40.

Buoyed by this, the company raised its full-year revenue growth guidance to 10% from previous expectations, citing stronger-than-expected performance in the first half of the year.

However, the full-year earnings per share guidance remains unchanged at $17.30 to $17.90. In addition, the company plans to increase marketing investments, acquire new customers, and continue investing in technology fields such as artificial intelligence.

Against the backdrop of fierce competition in the high-end credit card market, American Express’s incremental income is being reinvested rather than turned into expanded profits, which may be a key reason the market is re-evaluating its valuation. After the release of earnings, American Express’s stock price came under pressure, dropping more than 6% intraday.

Profit beats expectations, revenue slightly insufficient

American Express's net profit for the second quarter was $3.11 billion, earnings per share $4.53, higher than the previous year’s $2.89 billion and $4.08 per share, and exceeded the FactSet analyst average estimate of $4.40.

In terms of revenue, net revenue excluding interest expense was $19.637 billion in the second quarter, slightly below the market expectation of $19.703 billion.

The billed business volume, which measures overall card transaction amount, grew 9% year-on-year in the second quarter to $455.8 billion, indicating cardholder consumption demand remains robust.

In terms of credit quality, credit loss provisions dropped to $1.1 billion in the second quarter, lower than the $1.4 billion a year earlier, mainly due to a partial release of reserves this quarter. Net write-off rate stayed at 2.0%, unchanged from last year, and overall credit risk is controllable.

Expense pressure intensifies, investment spending unrelenting

Although earnings performance is good, rapid expansion on the expense side remains a focal point for the market.

Total expenses for the second quarter increased 12% year-on-year to $14.5 billion, mainly due to higher customer incentive costs driven by increased cardholder spending, upgrades to the US Platinum Card, greater cardholder benefits usage, and overall operational cost increases.

American Express’s customer base centers on holders of high-end credit cards such as Platinum and Gold cards.

With competitors such as JPMorgan's Sapphire Reserve, Citi's Strata card, and Capital One Venture X focusing on the high-end market, American Express is compelled to invest heavily to retain existing customers and compete for new ones.

The company stated its full-year earnings per share guidance remains unchanged partly to reserve space for more marketing and technology investments, including continued deployment in artificial intelligence.

New customer growth accelerates, young groups become main force

High investment appears to be yielding visible results.

In the second quarter, American Express added 3 million new customers, three-quarters of whom applied for credit card products with annual fees, showing strong appeal in acquiring high-value clients.

CEO Stephen Squeri said after the earnings release that the Platinum Card portfolio has become the fastest-growing product line in American consumer business.

He also noted that the largest share of new customers comes from Millennials (born 1981–1996) and Generation Z (born 1997–2012), a trend of great importance to cultivating the company’s long-term client base.

On Friday, American Express also announced plans to acquire European restaurant reservation platform TheFork. The platform covers 11 countries and has partnerships with about 50,000 restaurants.

The company said the deal still requires regulatory approval and completion of relevant labor consultations before it can be officially closed. The acquisition is seen as a move by American Express to expand dining-related member benefits and strengthen its high-end consumption scenarios.

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